Buy UltraTech Cement Ltd For Target Rs.8,730 - Yes Securities
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Inflated cost derailed EBITDA
Our view
The upcoming capacities of 19.5MTPA would help UTCEM to encash the prolonged cement demand and drive the strong volume growth by FY23E. For FY22/23E, we have lowered our volume est. by ~6/7% respectively, due to unexpected demand slowdown during 2Q-3QFY22, but we believe the volume would continue to grow by ~4/9/10% in FY22/23/24E. Although, we have trimmed our volumes estimates but revenue to remain unchanged aided by the healthy NSR in FY22/23E. Inflating fuel/diesel cost was the major reason for margin erosion for FY22E, thus we reduce our EBIDTA est. by 15/12% for FY22/23E respectively. We expect UTCEM EBITDA/te to bottom at approx. Rs1,250/te in FY22E. While, going forward we expect EBITDA/te to improve to ~Rs1400/te in FY23/24E on the back of normalizing cost and sustainable NSR. Over healthy operating profit, we expect a free cash flow generation of Rs120bn post CAPEX outlay of Rs103bn over FY22-24E.
Result Highlights
* Volume improved by 7% q/q (remained muted by 3% y/y) to 23.1MMT (YSEC est. 22MMT) in 3QFY22. While the healthy Net Realization/te (Blended) stood at Rs5,614/te (+1% q/q and +9% y/y) led the reported revenue to Rs130bn (+8% q/q and +6% y/y) v/s YSEC est. 122bn in 3QFY22.
* White Cement & RMC revenue increased by +3/8% y/y and +8/9% q/q to Rs5.4/6.7bn respectively in 3QFY22.
* EBITDA decline by 11% q/q and 22% y/y to Rs24.2bn v/s YSEC est. Rs27.6bn in 3QFY22 led by impact of inflated fuel cost.
* The unitary power/freight/RM cost increase by +20/2/11% q/q and +39/5/19% y/y respectively, resulted in EBITDA/te decline to Rs1,046/te by 16% q/q and 19% y/y in 3QFY22.
* Due to the reversal of provision of Tax, the PAT increased by 30% q/q and 8% y/y to Rs17bn in 3QFY22.
Valuation
Net Debt/EBITDA continues to remain at bottom low of 0.49x in Q3FY22 v/s 0.55x in Q3FY22. At CMP, stock trades at 21/17/15x of EBITDA on FY22/23/24E. Thus, we retain our BUY recommendation with a TP of Rs8,730 (previously Rs8,600), valuing the stock at 16.5x EV/EBITDA on the FY24E estimate.
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